Carr warns of tough times ahead in budget

The Premier warned yesterday that this year's state budget will be the toughest his Government has faced, with the possibility of Labor delivering its first budget deficit next financial year.

Speaking before question time in Parliament yesterday, Bob Carr warned that every area of spending, with the exception of health, transport and education, was "currently under the microscope".

"We were shaping this budget to deliver what I think the public wants and that is bigger financial commitments still on health and hospitals and on transport. Now, it's made very, very hard by savage cuts," he said.

"It's too early to spell details out at this stage but every area of spending is under the microscope. Unless the Prime Minister steps in with that Grants Commission recommendation, we will have to make tough decisions. There is no alternative."

Mr Carr said Commonwealth grants are the state's biggest source of revenue, accounting for about 40 per cent of the total.

He said the Commonwealth Grants Commission decision to cut $376 million from NSW grants combined with pay increases to teachers and nurses worth around $400 million had made a severe dent in the state's coffers.

"And then there are the Commonwealth cuts of $105 million over four years in health expenditure, in health grants because they jigged the formula over five years . . . so they're the pressures on our budget.

"Well, now you've got the state with the biggest population having to cop a bigger outflow of money from our borders to other states including to Queensland. And no account of the cost of NSW absorbing 40 per cent of the migrant intake each year."

Mr Carr's comments come in the wake of the Treasury's mid-year review released early in January when the Treasurer, Michael Egan, flagged that NSW could fall into a $275 million deficit in 2004-05 - a $575 million turnaround on predictions just six months before.

The new forecast was largely based on an expected cooling of the Sydney property market and sparked an early warning from Mr Egan of "leaner times" and a "pretty difficult" budget.

The Treasury's mid-year review document revealed that Sydney's robust property market delivered $654 million more in stamp duty revenue than expected. This meant a revision in this year's budget surplus to $150 million.

But the extra spending meant the surplus for 2004-05 had also been revised, from a $303 million surplus to the projected $275 million deficit.

The five main areas of extra spending in the coming year that will put the big new dent in the state's coffers include: $386 million for education, including $229 million ($308 million for a full year) for teachers' pay following the Industrial Relations Commission award. There is also $75 million more for increased long service and leave costs and higher-than-expected enrolment costs. $90 million for health, including $71 million for higher nurses' wages ($86 million in a full year). $71 million for public transport, including additional funding for the State Rail Authority. $64 million for the police, including more officers and IT upgrades.